D. Murali and Kumar Shankar Roy

Chennai: Telecom is a sector which is generating a lot of buzz and has reasons to do so. With the advent of Vodafone through Hutch, foreign companies now keenly continue to evaluate merger and acquisition opportunities in the telecom space. Some smaller operators are ripe for the taking while lot of new operators are ready to jump in the bandwagon riding the new wave of telecom licences.

Things could get more interesting if the ramifications of the new M&A (merger and acquisition) guidelines laid down by India's telecom regulator TRAI (Telecom Regulatory Authority of India) is anything to go by. "Foreign operators who have not been able to enter India so far will find good opportunities to enter India by partnering with the new players," says Mr Nitin Gupta, Associate Director and Leader (Telecom Transaction Advisory Services), Ernst & Young. While competition is clearly going to hot up, Indian customers could soon be associating themselves with the likes of AT&T, Qatar Tele and Etisalat. Mr. Gupta shares his views with Business Line in an exclusive email interview. Read on...

What have been the key changes in the M&A guidelines compared to the previous one?

If you ask me, there have been 3-4 key changes to the guidelines. Firstly, market share of the merged entity shall not be greater than 40 per cent as against 67 per cent previously. Second, the market share has now been defined both in terms of subscribers and adjusted gross revenue (AGR). Earlier, this was defined only in terms of subscribers. Third, no M&A activity will be allowed if the number of unified access services licence (UASL) access providers falls below four post the merger activity; this was three earlier. The new guidelines also state that permission for merger shall be accorded, only after completion of three years from the effective date of the licences.

What effect will the revised guidelines have on M&A activity in the sector?

These guidelines are definitely more stringent as compared to the earlier guidelines issued in 2004. Mergers have been made more difficult by the 40 per cent market-share and the four operator post-merger criterion. Further, the three-year wait period will mean that even the established players will have to wait for three years to merge with the newer operators, thereby making it difficult for newer players to partner with existing players.

However, foreign operators who have not been able to enter India so far will find good opportunities to enter India by partnering with the new players. Industry sources already point out that players like AT&T, Qatar Tele (Qtel), Etisalat, Bahrain Telecommunications Company and Zain, amongst others, may be interested in entering India and are possibly in talks with the newer operators.

Why do you think TRAI drafted these guidelines?

TRAI seems to be protecting the consumer's interest. It has done so by ensuring that adequate competition is present in each circle (at least four operators post-merger, with a 40 per cent market share). By enforcing a three-year period to grant permission for mergers, TRAI has ensured the seriousness of the newer players. Also, including AGR to calculate market share, in addition to subscriber numbers, could also mean that TRAI has tried to make the revised guidelines technology-neutral.

Are there areas which the revised guidelines have not covered?

In its Information Note to the Press dated August 29, 2007, TRAI had recommended the acquisition of equity capital up to 10 per cent in a target licensee's enterprise through an automatic route and anything beyond that and up to 20 per cent on case by case basis. However, the revised guidelines have not included any references to acquisitions.

There is a lot of talk about telecom infrastructure sharing. Do you think these guidelines would affect it?

These guidelines will have a positive impact on infrastructure sharing. Since the merger of the new players with the existing players has been made more difficult, the case for infrastructure sharing will be more compelling. We are likely to see more infrastructure players to service the operators over the medium term. In a way, these guidelines have increased competition, even in the infrastructure space.

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